Overview
Zanzibar's Economy in 2026: Resilience Amid Global Uncertainty
Zanzibar, as a semi-autonomous region within Tanzania, contributes approximately
4–5% to national GDP but plays a disproportionate role in tourism and services,
generating significant foreign exchange earnings that support union-wide economic stability.
In early 2026, Zanzibar's economy demonstrates resilience with moderate inflation at 4.3%
in January — down from 5.3% in January 2025 — driven by declining non-food prices even as food inflation
climbed to 9.1%. GDP growth for Zanzibar reached 6.8% in 2025, outperforming mainland
Tanzania's 5.9%, and is projected at 7.2% for 2026, driven by tourism, construction, and manufacturing.
Visitor arrivals grew 16.2% to 736,755 in 2025, with tourism receipts reaching
USD 1,535.9 million and underpinning a current account surplus of USD 896.6 million.
The region's record TZS 8.217 trillion budget for FY2025/26 (up 17.69% year-on-year)
focuses on blue economy and tourism infrastructure, reducing external debt reliance and aligning
with national Vision 2050 goals.
Zanzibar GDP Growth vs. Mainland Tanzania (%)
Annual growth rates — Actual 2025 & Projection 2026 | Source: Bank of Tanzania
Section 1
Inflation Developments in Zanzibar
Inflation measures the general increase in prices of goods and services across the economy.
According to the Bank of Tanzania report, headline inflation in Zanzibar
decreased to 4.3% in January 2026, compared with 5.3% in January 2025, mainly due to
the sharp decline in non-food inflation from 4.2% to just 0.4%.
Inflation Trends — Key Data Table
| Indicator | Jan 2025 (%) | Dec 2025 (%) | Jan 2026 (%) | Change | Notes |
|---|
| Headline Inflation | 5.3 | — | 4.3 | ▼ −1.0pp | Decline driven by non-food drop |
| Food Inflation | 7.2 | 6.2 | 9.1 | ▲ +1.9pp | Rise in food/beverages, restaurants |
| Non-Food Inflation | 4.2 | — | 0.4 | ▼ −3.8pp | Sharp decline aids overall stability |
| Month-to-Month Inflation | 1.9 | 0.8 | 2.3 | ▲ +0.4pp | Seasonal increases in transport/food |
| Average Inflation H1 FY2025/26: 3.7% — within national 3–5% target range |
Inflation Components Trend
Jan 2025 → Dec 2025 → Jan 2026 (%)
Jan 2026 Inflation Breakdown
Headline, Food & Non-Food comparison
Key Observations
📉
Non-food inflation collapsed from 4.2% to just 0.4%, providing the primary anchor for overall price stability in Zanzibar.
🍽️
Food prices rose significantly — particularly for food and beverages, restaurants and accommodation, and transport services, reaching 9.1% by January 2026.
📊
Month-to-month inflation ticked up to 2.3% in January 2026 from 0.8% in December 2025, reflecting seasonal demand pressures in the tourism peak season.
🎯
Average H1 FY2025/26 inflation of 3.7% remains comfortably within Tanzania's national 3–5% target band, supporting economic confidence.
⚠️
Risk Watch: Food inflation at 9.1% represents a persistent vulnerability. If global commodity shocks occur — particularly in fuel, imported grains or edible oils — this could spill over to headline inflation and erode purchasing power for lower-income households.
Section 2
Government Budgetary Operations in Zanzibar
Government budget operations show how the government collects revenue and spends funds
to finance development and public services. In January 2026, the Government of Zanzibar mobilized
TZS 173.0 billion in total resources, with domestic revenue accounting for
TZS 170.7 billion — representing about 77.4% of the monthly target.
Government Revenue Sources — January 2026
| Revenue Source | Amount (TZS Billion) | Share of Total | Key Components |
|---|
| Tax Revenue | ~153.9 | ~89% | VAT, excise duties, import taxes, income tax, tourism taxes |
| Non-Tax Revenue | 16.8 | 9.8% | Fees, levies, dividends from state entities |
| Grants | 2.3 | 1.3% | External development partners |
| Total Government Resources | 173.0 | 100% | — |
Government Expenditure — January 2026
Total government expenditure in January 2026 amounted to TZS 485.4 billion, with
development spending constituting the largest share at 65%, reflecting Zanzibar's prioritisation
of infrastructure, tourism and social services.
| Expenditure Category | Amount (TZS Billion) | Share | Focus Areas |
|---|
| Recurrent Expenditure | 167.5 | 34.5% | Salaries, operations, utilities |
| Development Expenditure | 317.9 | 65.5% | Infrastructure, tourism development, social services |
| Total Expenditure | 485.4 | 100% | — |
Revenue Composition
January 2026 — TZS Billion
Expenditure vs Revenue
January 2026 — TZS Billion (showing fiscal gap)
Fiscal Balance
Because expenditure significantly exceeded revenue, Zanzibar recorded a substantial fiscal deficit.
The deficit was primarily financed through domestic borrowing via the Bank of Tanzania's
government securities market.
| Indicator | Amount (TZS Billion) | Notes |
|---|
| Total Revenue | 173.0 | 77.4% of monthly target |
| Total Expenditure | 485.4 | 65% development-focused |
| Fiscal Deficit | −312.5 | Financed via domestic borrowing / BoT securities market |
📌
FY2025/26 Annual Budget: TZS 8.217 trillion — a record-high budget representing a
17.69% increase year-on-year, with a strong focus on the blue economy and tourism infrastructure.
This aligns with Tanzania's Vision 2050 for industrialisation and sustainable development.
Section 3
External Sector Performance in Zanzibar
The external sector measures Zanzibar's trade and international transactions.
According to the Bank of Tanzania report, Zanzibar recorded a current account surplus of
USD 896.6 million in the year ending January 2026 — equivalent to approximately
TZS 2.33 trillion (at ~TZS 2,600/USD).
Current Account Components — Year Ending January 2026
| Indicator | USD Million | Approx. TZS Trillion | Balance |
|---|
| Goods Exports | 98.3 | 0.26 | — |
| Goods Imports | 606.6 | 1.58 | — |
| Goods Trade Balance | −508.2 | −1.32 | Deficit |
| Services Receipts | 1,535.9 | 3.99 | — |
| Services Payments | 151.4 | 0.39 | — |
| Net Services Balance | 1,384.6 | 3.60 | Surplus |
| Current Account Balance | +896.6 | +2.33 | Overall Surplus ✓ |
External Sector — Goods vs Services Balance (USD Million)
Year ending January 2026 | Tourism-driven services surplus offsets goods trade deficit
Services Sector: The Tourism Engine
The services sector — especially tourism — is the most important driver of
Zanzibar's external sector and the island's largest foreign exchange earner.
In 2025, Zanzibar welcomed over 910,000 visitors (up 16.2% from the prior year),
generating USD 1,535.9 million in services receipts.
| Indicator | USD Million | Approx. TZS Trillion | Key Drivers |
|---|
| Services Receipts | 1,535.9 | 3.99 | Tourism, hotels, travel, tour operators |
| Services Payments | 151.4 | 0.39 | Outbound travel, financial services |
| Net Services Balance | +1,384.6 | +3.60 | Tourism dominant — backbone of FX earnings |
Zanzibar Trade Balance: Goods vs Services (USD Million)
How tourism surplus more than compensates for goods trade deficit
✈️
Tourism receipts of USD 1,535.9 million are the backbone of Zanzibar's foreign exchange earnings, contributing approximately 15% to national GDP indirectly.
📦
Goods imports of USD 606.6 million (machinery, consumer goods, industrial equipment) far outpace goods exports of USD 98.3 million, creating a USD 508.2 million goods trade deficit.
💹
The overall current account surplus of USD 896.6 million bolsters Tanzania's national foreign exchange reserves (USD 6.3 billion), enabling USD 15 billion FDI target for 2026 and stabilising the Tanzanian Shilling.
Section 4
Zanzibar Trade Balance
Zanzibar has a significant trade deficit in goods, meaning it imports considerably
more goods than it exports. However, this deficit is more than offset by the island's
dominant services surplus — particularly from tourism.
| Indicator | USD Million | Approx. TZS Billion | Balance Type |
|---|
| Goods Exports | 98.3 | 255 | Inflow |
| Goods Imports | 606.6 | 1,577 | Outflow |
| Trade Balance (Goods) | −508.2 | −1,322 | Deficit — offset by tourism surplus |
Section 5
Summary of Zanzibar Economic Performance — January 2026
| Indicator | Value | Status |
|---|
| Inflation Rate (Jan 2026) | 4.3% | Moderate ✓ |
| Food Inflation | 9.1% | Elevated ⚠ |
| Non-Food Inflation | 0.4% | Low ✓ |
| Government Revenue | TZS 173.0 billion | 77.4% of target |
| Government Expenditure | TZS 485.4 billion | 65% development |
| Fiscal Deficit | TZS 312.5 billion | Domestic borrowing |
| FY2025/26 Annual Budget | TZS 8.217 trillion | +17.69% YoY ✓ |
| Current Account Balance | TZS 2.33 trillion surplus | Surplus ✓ |
| Services Surplus (Tourism) | TZS 3.60 trillion | Strong ✓ |
| Goods Trade Balance | TZS −1.32 trillion | Deficit — offset by tourism |
| GDP Growth 2025 | 6.8% | Outpaces mainland ✓ |
| GDP Growth Projection 2026 | 7.2% | Positive outlook ✓ |
Section 6
Key Economic Insights & Implications for Tanzania
Zanzibar's economy, heavily reliant on tourism as its major FX earner, complements mainland strengths
in mining and agriculture — enhancing national diversification and resilience. This section examines the
broader implications for Tanzania's growth trajectory.
✈️ Tourism Drives the Economy
Tourism-related services generate the largest share of FX earnings. Visitor growth of 16.2% to 736,755 in 2025 reinforces Zanzibar's position as East Africa's premier tourism destination.
📊 Inflation Remains Moderate
Headline inflation at 4.3% remains within a manageable range, aligning with Tanzania's national 3.2% average (Feb 2026). This supports consumer spending and investor confidence.
📦 Import Dependence Risk
Zanzibar imports significant volumes of machinery, consumer goods, and industrial equipment. Goods deficit of USD 508.2 million exposes the island to global supply chain and commodity shocks.
💸 Fiscal Deficit Financing
A TZS 312.5 billion deficit financed through domestic borrowing risks increasing union debt (debt/GDP ~43%), potentially crowding out private investment if yields rise significantly.
Economic Implications Matrix — Zanzibar & Tanzania
| Category | Positive Impact | Potential Risk | Securities Market Link |
|---|
| Inflation Stability | Low 4.3% aids consumer spending; aligns with national 3.2%, supporting 6.3% GDP | Food volatility (9.1%) could spill to mainland if unaddressed | Stable rates enable low-yield borrowing (11.3%), funding food security projects |
| Budgetary Operations | TZS 8.217T budget (+17.69%) funds blue economy, adding tourism jobs (15% GDP contribution) | Deficit TZS 312.5B strains union finances if external grants drop | Oversubscription (34%) mobilises funds for development, reducing external reliance |
| External Sector | Surplus USD 896.6M bolsters reserves (USD 6.3B), enabling FDI (USD 15B target 2026) | Goods deficit USD 508.2M exposes to import shocks | FX inflows stabilise Shilling, enhancing market confidence for bond auctions |
| Overall Growth | 7.2% projection outperforms mainland, driving union 6.5–6.9% medium-term via tourism/mining synergy | Inequality if tourism benefits skew urban; unemployment risks | Deepens financial markets, recycling savings into national projects like Vision 2050 |
Comprehensive Dashboard: All Key Indicators (Jan 2026)
TZS Billion | Revenue vs Expenditure vs Current Account Surplus
Conclusion
Summary & Outlook
Data from the Bank of Tanzania confirms that Zanzibar's economy is characterised by
moderate inflation (4.3%), high development spending (65% of budget),
strong service-sector performance driven by tourism, and a current account
surplus of USD 896.6 million supported by tourism earnings.
The service sector remains the backbone of Zanzibar's economic growth and external sector
stability. With GDP growth projected at 7.2% in 2026 and tourism arrivals continuing to
climb, Zanzibar is well-positioned to enhance Tanzania's overall economic performance and contribute
to the national Vision 2050 goals of inclusive, industrialised growth.
However, integrated policy coordination through the Bank of Tanzania — including prudent management
of the fiscal deficit, investment in food security to address elevated food inflation, and
diversification beyond tourism — will be essential to sustaining this momentum and ensuring
equitable distribution of economic gains across the islands.
Section 7
Zanzibar & Tanzania's Government Securities Market
Zanzibar's fiscal deficit is not financed in isolation. The island benefits from Tanzania's
union-wide government securities market, managed by the Bank of Tanzania (BoT),
which provides a structured and cost-effective mechanism for domestic deficit financing.
🏦 Bank of Tanzania — Securities Market Highlight
Zanzibar benefits from the union-wide market managed by the Bank of Tanzania (BoT), where recent
bond auctions have been oversubscribed by up to 34% — signalling strong investor
confidence. The 10-year bond yield stands at 11.30%, providing relatively low-cost
domestic financing for government development deficits and reducing reliance on more expensive
external borrowing.
How the Securities Market Supports Zanzibar
34%
Bond Oversubscription Rate
11.30%
10-Year Bond Yield
~43%
Debt-to-GDP Ratio (Union)
TZS 312.5B
Jan 2026 Deficit Financed
USD 6.3B
National FX Reserves
USD 15B
FDI Target 2026
Securities Market — Bond Auction Dynamics vs Deficit Financing
Illustrating the relationship between bond market demand and Zanzibar's fiscal gap (Jan 2026, TZS Billion)
Sectoral Link: How Tourism FX Supports the Securities Market
Tourism foreign exchange inflows — contributing approximately 15% to national GDP indirectly
— stabilise the Tanzanian Shilling. A stable Shilling, in turn, enhances investor confidence in government
bond auctions, keeping yields competitive and enabling Zanzibar to fund its development spending at lower cost.
| Mechanism | Value / Rate | Risk Factor | Positive Outcome |
|---|
| Tourism FX receipts → Shilling stability | USD 1,535.9M (services receipts) | Import shocks (USD 508.2M goods deficit) | Stable Shilling boosts bond auction confidence |
| Bond auctions → Development financing | 11.30% yield / 34% oversubscription | Rising yields if debt/GDP (~43%) spikes | Low-cost domestic borrowing, TZS 312.5B financed |
| Dev. expenditure → Tourism infrastructure | TZS 317.9B dev. spending (65%) | Fiscal deficit crowding out private sector | New ports, airports, roads boost arrivals (+16.2%) |
| National FX reserves → Investor confidence | USD 6.3B reserves | External grant reduction (currently 1.3% of revenue) | Supports USD 15B FDI target for 2026 |
| This virtuous cycle — tourism → FX → Shilling stability → bond market confidence → development spending → tourism infrastructure — is the core engine of Zanzibar's economic model. |
Section 8
Vision 2050, Blue Economy & FY2025/26 Budget Priorities
🌊
Blue Economy Focus — FY2025/26
Zanzibar's record TZS 8.217 trillion budget for FY2025/26 — a 17.69% increase
year-on-year — prioritises blue economy development and tourism infrastructure. This aligns directly with
Tanzania's national Vision 2050 goals of industrialisation, sustainable resource use,
and inclusive economic growth.
The blue economy encompasses Zanzibar's vast marine resources — from deep-sea fisheries and aquaculture
to maritime trade, ocean-based tourism, and sustainable coastal development. This strategic focus positions
Zanzibar not merely as a beach destination, but as a diversified maritime economy with
long-term export potential beyond the traditional tourism sector.
Budget Allocation & Strategic Priorities — FY2025/26
| Priority Area | Budget Focus | Alignment with Vision 2050 | Expected Impact |
|---|
| Blue Economy Development | Marine fisheries, aquaculture, ocean tourism | Sustainable resource use, export diversification | New FX revenue streams beyond land-based tourism |
| Tourism Infrastructure | Ports, airports, hospitality zones | Industrialisation, connectivity | Sustain 16%+ visitor growth trajectory |
| Social Services | Health, education, social protection | Human capital, inclusive growth | Reduce inequality, improve labour productivity |
| Infrastructure | Roads, energy, water | Industrialisation backbone | Reduce business costs, attract FDI |
| Domestic Revenue Mobilisation | Tax compliance, digital revenue systems | Fiscal self-sufficiency | Reduce deficit from current 77.4% revenue-to-target ratio |
| FY2025/26 Total Budget | TZS 8.217 Trillion (+17.69% YoY) — Record-high budget since Zanzibar's economic autonomy |
Budget Growth Trajectory — FY2024/25 vs FY2025/26 (TZS Trillion)
Illustrating the 17.69% year-on-year increase in Zanzibar's total budget allocation
Section 9
Key Risks & Economic Vulnerabilities
While Zanzibar's economic fundamentals are broadly positive, a clear-eyed assessment requires
acknowledgement of the structural vulnerabilities and downside risks that investors and policymakers
must monitor.
✅ Strength
Tourism FX resilience — USD 896.6M current account surplus and 16.2% visitor growth provide a durable external buffer against short-term shocks.
⚠️ Watch: Food Inflation
Food inflation at 9.1% remains elevated. If global commodity prices rise or regional droughts occur, this could spill over to headline inflation and erode household purchasing power.
🔴 Risk: Import Dependence
USD 508.2M goods trade deficit — heavy reliance on imported machinery, consumer goods and industrial equipment exposes Zanzibar to supply chain disruptions and currency depreciation risk.
🔴 Risk: Fiscal Deficit
TZS 312.5B monthly deficit financed domestically could increase union debt-to-GDP (currently ~43%). Rising yields may crowd out private investment if borrowing accelerates.
⚠️ Watch: Grant Dependency
External grants represent only 1.3% of government revenue, meaning any reduction in development partner support would have limited direct fiscal impact — but indicates limited international grant diversification.
⚠️ Watch: Inclusive Growth
7.2% GDP growth projection risks being concentrated in urban tourism centres. Unemployment risks and income inequality could deepen if growth benefits do not reach rural coastal communities.
✅ Strength: Reserve Buffer
National FX reserves of USD 6.3 billion — Tanzania's strong reserve position provides a significant macroeconomic buffer against external shocks and currency volatility.
ℹ️ Monitor: Revenue Target
Revenue collection at 77.4% of target in January 2026 signals potential gaps in tax administration and revenue mobilisation that need addressing to reduce deficit financing dependence.
Risk Radar: Zanzibar Economic Vulnerabilities (Score out of 10)
Higher score = greater risk. Assessment based on January 2026 data.
Section 10
Zanzibar vs. Mainland Tanzania — Economic Comparison
Understanding Zanzibar's economic performance requires contextualising it within Tanzania's broader
national framework. Zanzibar consistently outperforms mainland Tanzania on GDP growth
while contributing a disproportionate share of foreign exchange earnings relative to its population.
| Indicator | Zanzibar | Mainland Tanzania | Tanzania Union |
|---|
| GDP Growth 2025 (Actual) | 6.8% | 5.9% | ~6.0% |
| GDP Growth 2026 (Projected) | 7.2% | ~6.0% | 6.3% |
| Headline Inflation (Jan 2026) | 4.3% | ~3.2% (Feb 2026) | ~3.5% |
| Primary FX Earner | Tourism (services) | Gold, mining, agriculture | Diversified |
| Share of National GDP | ~4–5% | ~95–96% | 100% |
| Tourism Contribution (indirect, national) | ~15% of national GDP | Mining/agriculture ~30% | — |
| FX Reserves (National) | USD 6.3 Billion (shared/union) | USD 6.3B |
| Visitor Arrivals 2025 | 736,755 (+16.2%) | National total ~910,000+ | ~1.6M total |
| Medium-Term Growth Outlook | 7.2% (2026) | ~6.0% | 6.5–6.9% (medium term) |
| Zanzibar's outperformance on GDP growth is driven by tourism recovery, construction and manufacturing. Integrated BoT policy ensures union-wide monetary and fiscal coordination. |
GDP Growth Comparison (%)
Zanzibar vs Mainland vs Union — 2025 & 2026 Projection
Tourism vs Mining/Agriculture FX Share
Relative FX contribution to Tanzania's national economy
Section 11
Policy Recommendations & Strategic Priorities
Zanzibar's economic strengths position Tanzania for inclusive growth. However, integrated policy
coordination through the Bank of Tanzania is key to sustaining momentum while managing
the identified vulnerabilities.
1
Address Food Inflation Urgently. Food inflation at 9.1% risks eroding real incomes for
lower-income households. Investment in local food production, storage infrastructure and import
diversification is needed to reduce dependence on volatile global commodity markets.
2
Improve Revenue Mobilisation. Revenue collection at 77.4% of target indicates gaps
in tax administration. Strengthening digital revenue systems, broadening the tax base — particularly
in the growing tourism sector — and reducing leakages would narrow the TZS 312.5B monthly deficit.
3
Diversify Beyond Tourism. While tourism is Zanzibar's backbone, the goods trade
deficit of USD 508.2M highlights structural import dependence. Accelerating blue economy development —
fisheries, aquaculture, maritime services — would reduce this exposure and create new export revenue streams.
4
Ensure Inclusive Distribution of Growth. 7.2% GDP growth is commendable, but benefits
risk concentration in Zanzibar Town and major tourist areas. Targeted social spending, rural infrastructure
investment and SME support for coastal communities are essential for equitable growth.
5
Manage Domestic Debt Prudently. With union debt-to-GDP at ~43% and a monthly fiscal
deficit financed entirely through domestic borrowing, policymakers must monitor bond yields carefully.
A proactive debt management strategy will prevent crowding out of private sector investment.
6
Leverage BoT Coordination for Vision 2050. The Bank of Tanzania's role in overseeing
the government securities market is critical. Deepening financial markets — recycling private savings
into productive national infrastructure projects — will accelerate progress toward Tanzania's
Vision 2050 industrialisation goals.
Section 12
Investor Outlook: Zanzibar 2026
For investors considering Tanzania and Zanzibar specifically, the macroeconomic picture in
early 2026 presents a compelling combination of above-average growth, tourism-driven
stability, improving infrastructure, and a favourable policy environment.
| Sector | Opportunity | Key Data Point | Investor Signal |
|---|
| Tourism & Hospitality | Fastest-growing tourism market in East Africa | +16.2% visitor growth; USD 1,535.9M receipts | 🟢 Strong Buy |
| Blue Economy / Marine | Untapped deep-sea fisheries, aquaculture, maritime | TZS 8.217T budget prioritises blue economy | 🟢 High Potential |
| Real Estate & Construction | Tourism infrastructure boom driving construction | 65% of gov. expenditure is development-focused | 🟢 Active Growth |
| Government Securities | Attractive 10-year yields in a growth market | 11.30% yield; 34% oversubscribed | 🔵 Income Opportunity |
| Food & Agriculture | Address food inflation (9.1%) through local production | Heavy food import dependence; local supply gap | 🔵 Strategic Need |
| Import Substitution / Manufacturing | USD 508.2M annual goods deficit = domestic manufacturing gap | Strong import demand for machinery, consumer goods | 🔵 Long-Term Play |
| Financial Services | Deepening capital markets aligned with Vision 2050 | Bond market oversubscription signals savings surplus | 🔵 Market Deepening |
| FDI Target for Tanzania 2026: USD 15 Billion | National FX Reserves: USD 6.3 Billion | Investor inquiries: ticgl.com/investment-2 |
Sector Investment Attractiveness Score — Zanzibar 2026
Composite score based on growth trajectory, policy support and market size potential (scale: 1–10)
Conclusion: Zanzibar's Economic Trajectory
Data from the Bank of Tanzania confirms that Zanzibar enters 2026 from a position
of moderate inflation, high development spending, strong tourism-driven FX earnings,
and a current account surplus of USD 896.6 million. GDP growth at 6.8% in 2025 and a 7.2% projection
for 2026 places Zanzibar among the fastest-growing sub-national economies in East Africa.
The service sector — anchored by tourism — remains the backbone of Zanzibar's economic
growth and external sector stability. The island's integration into Tanzania's union-wide
monetary framework, including the BoT-managed securities market, provides crucial tools for
deficit financing and long-term development investment aligned with Vision 2050.
To sustain this trajectory, Zanzibar must address food inflation, improve revenue mobilisation,
and deepen economic diversification into the blue economy — ensuring that growth becomes genuinely
inclusive for all Zanzibaris. For investors, policymakers and researchers, the data is clear:
Zanzibar's economic moment is now.
📉 Moderate Inflation (4.3%)
💰 TZS 312.5B Deficit Managed
✈️ USD 1.54B Tourism Receipts
📈 7.2% GDP Outlook 2026
🌊 Blue Economy Prioritised
🏦 Bond Market 34% Oversubscribed
